Thailand’s central bank governor has called on the next government in Bangkok to strengthen domestic consumption and investment in the face of a weakening global economy. Elections will be held in December, to pave the way for a new administration, following the military coup that deposed former prime minister Thaksin Shinawatra in September 2006.
Tarisa Watanagase, who was appointed to head the Bank of Thailand after the coup, acknowledged in an interview with Emerging Markets that “domestic business and consumer confidence [was] somewhat undermined by non-economic factors, particularly political, over the past 12-18 months.”
The new government would need to “strengthen business and consumer confidence as soon as possible,” given uncertainty over how far the US sub-prime crisis will cloud Thai exporters’ prospects, she said. She urged “streamlined” local government and rural financing apparatus, to restore and diversify incomes outside the urban centres, and argued for an acceleration of public infrastructure projects, especially rail links to Bangkok.
“Labour-intensive industries should be encouraged to restructure through a number of incentives and financial channels, and human resources development will need to be the core of a long term and continuing policy platform,” she said.
Tarisa defended the controversial capital controls – introduced in December 2006 to curb Thai baht appreciation caused by alleged speculation - saying that the policy “puts priority on stability while ensuring sustainable growth.” She added she recognized that GDP growth was unlikely to return to double-digit levels seen before the 1997 Asia crisis in the context of this changed monetary policy.
Going forward, Tarisa encouraged the authorities to “maintain and strengthen macro financial and monetary stability based on market-oriented policies”. She denied that the capital controls, and ministerial comments on monetary policy, had undermined central bank credibility. That depends “on our ability to listen to and communicate with others, so as to ensure that markets do not misinterpret our policies”, she said.
Thailand’s finance minister Chalongphob Sussangkarn told a seminar in Washington DC yesterday that the country “cannot act alone” to liberalize capital controls and allow exchange rate appreciation. Thai exports would be at a competitive disadvantage if other Asian states with managed exchange rates did not follow suit.